Trump’s Tariffs I: More Tariff Turmoil.
It’s July. Back in March, we expected that Trump’s Tariff Turmoil (TTT) would become less tumultuous by the end of the summer. We figured that President Donald Trump would start to declare victory in his trade war with the world. We figured he would start to move on to other issues to reduce the risk that his trade war would cause a recession in the US. The political calendar shows that the congressional mid-term election campaigns will be starting in the not-too-distant future. Trump needs a good economy to increase the odds that the Republicans will hold onto their thin majorities in the House and the Senate come November 2026.
In fact, the economy is in very good shape right now. The labor market is at full employment given that the unemployment rate is 4.1%, and CPI inflation, excluding the slow-motion decline in rent inflation, is below 2.0% y/y (Fig. 1 below and Fig. 2 below). The Misery Index, which is the sum of the unemployment rate and the headline CPI inflation rate, is at 6.6%, well below its average over time of 9.0% (Fig. 3 below).
Why should Trump mess with success? Why not spend the time remaining until the elections in November of next year campaigning for Republican congressional candidates on the considerable economic and geopolitical successes of the White House so far?
